A nongovernmental not-for-profit (NFP) entity pursues its mission without ownership interests resembling those of a business corporation. Its statement of activities explains period performance and resource use through revenues, expenses, gains, losses, and changes in net assets.
The statement of activities is most analogous to a business income statement. Its purpose and objectives also include reconciling changes in the two net-asset classes.
Under U.S. generally accepted accounting principles (GAAP), donor stipulations determine whether recognized contributions increase net assets with or without donor restrictions.
- Net assets without donor restrictions: resources without donor-imposed limits, including amounts the governing board designates for future projects or investment.
- Net assets with donor restrictions: resources subject to donor-imposed purpose, time, or perpetual restrictions, including applicable restrictions extended by law.
- Releases from donor restrictions: reclassifications that increase the without-donor-restrictions class and decrease the with-donor-restrictions class by equal amounts.
The statement of activities helps resource providers assess service efforts, financial performance, and stewardship over resources entrusted to the entity.
Common mistakes
- Advance treated as support. Example 3's $20,000 receipt increases a liability; recognizing it as revenue inflates total change by $20,000.
- Both release columns positive. A $70,000 release entered positively in both columns invents of total support.
- Pledge collection recognized twice. The $18,900 collection reduces the existing receivable; only the separate $1,800 accretion adds contribution revenue in Year 2.
Bottom line
- The statement of activities explains period changes in both net-asset classes and reconciles beginning balances to ending balances.
- Contribution accounting distinguishes reciprocal transactions, unmet conditions, and donor restrictions before assigning recognized support.
- Future unconditional promises incorporate timing and collectibility; collection reduces receivables, while discount accretion adds contribution revenue.
- Qualifying donated services and goods produce contribution revenue, with expense recognized upon consumption and qualifying asset creation capitalized.
Exam shortcut
Mark every source amount as already recorded, omitted, or misclassified before calculating adjustments. This prevents adding donated services or qualifying program costs twice. Build a release schedule from donor terms and completion dates, then place equal amounts with opposite signs in the class columns. Calculate total change independently of releases. If a release correction changes that total, inspect the signs before revisiting recognition.
The full lesson (about 7,740 words, 52 min read) adds 3 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- I.B2
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